Principles of Good Tax Policy. Annette Nellen San José State University. Presentation Overview. Purpose of the statement Overview to the 10 principles Examples of application of the 10 principles. Tax Policy Concept Statement #1.
Annette NellenSan José State University
Guiding Principles of Good Tax Policy: A Framework for Evaluating Tax Proposals
How should proposals to change existing tax rules be analyzed?
Horizontal and vertical equity.
“Fairness” (or really, the perception of fairness).
Should really look at entire range of taxes a taxpayer is subject to.Equity & Fairness
Certainty, rather than ambiguity.
Ability to determine tax base and rate.
Basically, the level of confidence that exists that the tax is being calculated correctly.Certainty
A tax should be due at a time or in a manner that is most likely to be convenient for the taxpayer.
The costs to collect a tax should be kept to a minimum for both the government and taxpayers.
The tax law should be simple so that taxpayers can understand the rules and comply with them correctly and in a cost-efficient manner.
The effect of the tax law on a taxpayer’s decisions as to how to carry out a particular transaction or whether to engage in a transaction should be kept to a minimum.
The tax system should not impede or reduce the productive capacity of the economy.
Taxpayers should know that a tax exists and how and when it is imposed upon them and others.
A tax should be structured to minimize noncompliance.
The tax system should enable the government to determine how much tax revenue will likely be collected and when.
Convenience of payment
Appropriate government revenues
Equity (how are taxable income and ability to pay to be measured?)
Certainty (more recordkeeping)
Simplicity (not as simple as just taking the standard deduction)
Neutrality (tax law would encourage donations)
Minimum tax gap (many might believe they should claim something)Example: Charitable deduction for non-itemizers
Certainty, Economy in Collection, Simplicity
Neutrality, Minimum Tax Gap, Appropriate Government Revenues